Alternative Investments

Whether you are a seasoned professional looking to explore new areas within the alternative investment arena or a new industry participant seeking to establish a solid understanding of alternative investments, Alternative Investments: An Allocator's Approach, Fourth Edition (CAIA Level II curriculum official text) is the best way to achieve these goals.

In recent years, capital formation has shifted dramatically away from public markets as issuers pursue better financial and value alignment with ownership, less onerous and expensive regulatory requirements, market and information dislocation, and liberation from the short-term challenges that undergird the public capital markets. The careful and informed use of alternative investments in a diversified portfolio can reduce risk, lower volatility, and improve returns over the long-term, enhancing investors' ability to meet their investment outcomes. Alternative Investments: An Allocator's Approach (CAIA Level II curriculum official text) is a key resource that can be used to improve the sophistication of asset owners and those who work with them.

This text comprises the curriculum, when combined with supplemental materials available at caia.org, for the CAIA Level II exam.

"Over the course of my long career one tenet has held true, 'Continuing Education'. Since CalSTRS is a teachers' pension plan, it is no surprise that continuing education is a core attribute of our Investment Office culture. Overseeing one of the largest institutional pools of capital in the world requires a cohesive knowledge and understanding of both public and private market investments and strategies. We must understand how these opportunities might contribute to delivering on investment outcomes for our beneficiaries. Alternative Investments: An Allocator's Approach is the definitive core instruction manual for an institutional investor, and it puts you in the captain's chair of the asset owner."
--Christopher J. Ailman, Chief Investment Officer, California State Teachers' Retirement System

"Given their diversified cash flow streams and returns, private markets continue to be a growing fixture of patient, long-term portfolios. As such, the need to have proficiency across these sophisticated strategies, asset classes, and instruments is critical for today's capital allocator. As a proud CAIA charterholder, I have seen the practical benefits in building a strong private markets foundation, allowing me to better assist my clients."
--Jayne Bok, CAIA, CFA, Head of Investments, Asia, Willis Tower Watson

Auteur

DR. DONALD R. CHAMBERS, PhD, CAIA, is Associate Director of Programs at the CAIA Association; Chief Investment Officer of Biltmore Capital Advisors and Emeritus Professor at Lafayette College in Easton, Pennsylvania. Dr. Chambers previously served as Director of Alternative Investments at Karpus Investment Management. He is a member of the editorial board of The Journal of Alternative Investments. DR. HOSSEIN KAZEMI, PhD, is a senior adviser to the CAIA Association. He is the Michael and Cheryl Philipp Professor of Finance at the University of Massachusetts, Amherst; Director of the Center for International Securities and Derivatives Markets; a cofounder of the CAIA Association; and Editor-in-Chief of The Journal of Alternative Investments?the official publication of the CAIA Association and a member of the editorial board of The Journal of Financial Data Science. DR. KEITH H. BLACK, PhD, CAIA, FDP, is the Managing Director of Content Strategy at the CAIA Association. He was previously an associate at Ennis Knupp and, before that, an assistant professor at Illinois Institute of Technology. He is a member of the editorial board of The Journal of Alternative Investments.

Contenu

Preface xxxix

Acknowlegements xli

About the Authors xlv

Part 1 Ethics Regulations and ESG

Chapter 1 Asset Manager Code 3

1.1 General Principles of Conduct 3

1.2 Asset Manager Code 3

1.3 Notification of Compliance 5

1.4 Additional Guidance for the Asset Manager Code 6

Chapter 2 Recommendations and Guidance 11

Chapter 3 Global Regulation 27

3.1 Overview of Financial Market Regulation 27

3.2 Regulation of Alternative Investments Within the United States 28

3.3 Alternative Investment Regulation in Europe 38

3.4 Hedge Fund Regulation in Asia 45

Chapter 4 ESG and Alternative Investments 49

4.1 Background on ESG and Alternative Investing 49

4.2 ESG and Real Assets: Natural Resources 51

4.3 ESG and Real Assets: Commodities 53

4.4 ESG and Real Assets: Real Estate 55

4.5 ESG and Hedge Funds 61

4.6 ESG and Private Equity 66

Chapter 5 ESG Analysis and Application 71

5.1 Background on ESG 71

5.2 ESG Ratings and Scores 73

5.3 ESG Materiality and Disclosure 74

5.4 The United Nations Role in ESG Issues 76

5.5 ESG Fiduciary Responsibilities and Regulation 78

5.6 Methods of ESG Investing 80

5.7 Market-Based Methods of Addressing ESG Issues 85

5.8 ESG and Special Investment Consideration 87

Part 2 Models

Chapter 6 Modeling Overview and Interest Rate Models 93

6.1 Types of Models Underlying Investment Strategies 93

6.2 Equilibrium Fixed-Income Models 96

6.3 Arbitrage-Free Models of the Term Structure 99

6.4 The Black-Derman-Toy Model 100

6.5 P-Measures and Q-Measures 103

Chapter 7 Credit Risk Models 105

7.1 The Economics of Credit Risk 105

7.2 Overview of Credit Risk Modeling 109

7.3 The Merton Model 110

7.4 Other Structural Models: KMV 117

7.5 Reduced-Form Models 120

7.6 Empirical Credit Models 123

Chapter 8 Multi-Factor Equity Pricing Models 127

8.1 Multi-Factor Asset Pricing Models 127

8.2 FAMA-French Models 131

8.3 Three Challenges of Empirical Multi-Factor Models 133

8.4 Factor Investing 135

8.5 The Adaptive Markets Hypothesis 141

8.6 Time-Varying Volatility 142

8.7 Stochastic Discount Factors 143

8.8 Summary of Multiple-Factor Asset Allocation 145

Chapter 9 Asset Allocation Processes and the Mean-Variance Model 147

9.1 Asset Allocation Processes and the Mean-Variance Model 147

9.2 Implementation of Mean-Variance Optimization 155

9.3 Mean-Variance Optimization with Multiple Risky Assets 160

9.4 Mean-Variance Optimization and Hurdle Rates 162

9.5 Issues in Using Optimization for Portfolio Selection 163

9.6 Adjustment of the Mean-Variance Approach for Illiquidity 166

9.7 Adjustment of the Mean-Variance Approach for Factor Exposure 168

9.8 Mitigating Estimation Error Risk in Mean-Variance Optimization 168

Chapter 10 Other Asset Allocation Approaches 175

10.1 The Core-Satellite Approach 175

10.2 Top-Down and Bottom-Up Asset Allocation Approaches 176

10.3 Risk Budgeting 178

10.4 A Factor-Based Example of Implementing A Risk Budgeting Approach 181

10.5 Risk Parity 183

10.6 Other Quantitative Portfolio Allocation Strategies 189

10.7 The New Investment Model 193

Part 3 Institutional Asset Owners and Investment Policies

Chapter 11 Types of Asset Owners and the Investment Policy Statement 197

11.1 Endowments and Foundations 197

11.2 Pension Funds 198

11.3 Sovereign Wealth Funds 199

11.4 Family Offices 199

11.5 Strategic Asset Allocation: Risk and Return 199

11.6 Asset Allocation Objectives 202

11.7 Investment Policy Constraints 202

11.8 Investment Policy Statements for Institutional Asset Owners 204

Chapter 12 Foundations and the Endowment Model 221

12.1 Defining Endowments and Foundations 221

12.2 Intergenerational Equity, Inflation, and Spending Challenges 224

12.3 The Endowment Model 226

12.4 Why Might Large Endowments Outperform? 228

12.5 Risks of the Endowment Model 234

12.6 Liquidity Rebalancing and Tactical Asset A…